RCA in the commercial property press:

Pittsburgh Tower Challenges Blackstone

Wall Street Journal reports: Blackstone Group LP became admired and envied in the commercial real-estate world for its success in selling billions of dollars of property at the market's top, before the financial world collapsed. Now it has also won kudos for how it has handled some of its troubled assets.

The best example of this was its restructuring of the balance sheet of Hilton Worldwide, Blackstone's biggest private-equity investment. Earlier this month, Hilton's lenders and Blackstone finalized a deal that cut its $20 billion debt load by about $4 billion in exchange for Blackstone putting in $800 million of new equity.

Now, Blackstone is hoping to work its magic on another property. Built in the 1980s, the building is located in Pittsburgh's cultural district and designed by the architectural firm of Kohn Pedersen Fox Associates. Despite the tower's pedigree, it hasn't been easy for Blackstone to get it filled amid the financial downturn. It took a state incentive package—as well as the customized improvements—to help lure Pittsburgh's EQT to lease more than 250,000 square feet. The lease helped push the occupancy rate up to 96%.

Blackstone tried to sell the building earlier this year. But it faced several obstacles besides the lousy commercial real-estate-sales market. For one, Blackstone doesn't own the land below the building but instead has a long-term ground lease on it. Most investors prefer the security of owning buildings and the associated land. In addition, sales of trophy buildings in smaller cities like Pittsburgh have been hit harder by the financial downturn.

Many buyers have focused on larger cities such as New York and Washington, D.C., which are viewed as safer investments and more liquid markets. In 2009, the dollar volume of office transactions completed in the Pittsburgh area totaled about $136 million, down from a total of $149.6 million in 2008 and well below the peak volume in 2005 when about $413 million in office properties traded hands, according to Real Capital Analytics,a global commercial property research firm. Real Capital's data covers transactions valued at more than $5 million.

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Posted by: Nina Turner

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